How to switch to a new bank or credit union

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There are all kinds of motivations to make you move on from your current bank.

“Switching financial institutions may be prompted by any number of reasons, such as a move, a change in your financial needs or banking habits, a desire for better technology, service, or rates and fees,” says Greg McBride, CFA, Bankrate chief financial analyst.

Regardless of your motive, there’s legwork involved in breaking up with a bank. Here’s a guide on how to switch banks in five steps to make the transition as smooth as possible.

1. Figure out where to open your next account

Start by comparison shopping among banks, credit unions and community banks to avoid repeating mistakes. Many financial institutions offer several types of checking and savings accounts with different requirements and fees. A good starting point for your research may be Bankrate’s banking reviews, where analysts list the pros and cons of each of the institutions reviewed.

List the features that you’re looking for as you embark on your search. What’s most important to you? The following factors can help you prioritize which institutions to consider:

  • Lower fees
  • Higher interest rates for savers
  • Minimum balance requirements
  • Quality of mobile app
  • Budgeting tools
  • Access to local branches
  • Large fee-free ATM network
  • Safe-deposit box
  • Customer service hours
  • Bank reputation

“Consider your banking personality and regular financial habits,” McBride says. “If you need a safe deposit box, then an online or neobank won’t work. If you’re looking for lower fees or better rates and do all of your banking digitally, then you’re not limited to what is in your local area.”

Once you’ve narrowed down your candidates, visit the banks’ or credit unions’ websites to read the fine print in the disclosures. Ensure that there aren’t any hidden fees or terms and conditions that could be problematic.

2. Make a list of your automatic transactions and direct deposits

You likely have your paycheck, dividends and other sources of income automatically deposited into your checking account. Likewise, you make automated payments on a monthly basis for cell phone charges, utilities, subscription services, charitable contributions and other goods and services. Review your statements over the past 12 months and make a list of those incoming and outgoing transactions; some may be made on an annual basis, so you want to be sure to catch those as well. Note also your linked accounts – perhaps you wisely have funds transferred each month into IRA or HSA accounts.

This may take a while depending on how much you rely on services like online bill pay. But in the end, it’ll be worth it since you’ll have to open new accounts and set up automatic payments.

Once you have your list together, it’s time for the next step.

3. Open your new account

Since you’ve done your homework, opening an account at the bank of your choice is the easy part. Many customers do this without stepping foot in the bank. According to a recent banking survey by J.D. Power, nearly one-third of new accounts are opened via a bank website or mobile app.

The steps are similar whether you open an account online or in person at a branch: You will provide information such as your Social Security number, date or birth and current address. You may also need to submit or show documents like a valid driver’s license or passport.

The institution may run your information through ChexSystems to see if your banking history is pristine or checkered. And you’ll have to provide a deposit – the minimum deposit required to avoid fees would be a smart move. You can fund the account in the form of a check or electronic payment. You may also be able to wire funds into the account, depending on the bank. If you’re depositing money into your account by transferring it from another account, make sure to gather the other bank account number and nine-digit routing number.

If you are intent on banking with your phone, download the bank’s mobile app. Order checks if you still use them, as well as a new debit card. Now you’re ready for the next step.

4. Set up automatic payments and direct deposits

You won’t be ready to switch banks until you’ve taken inventory of every account connected to your checking and savings accounts.

Get organized and make a list of all linked accounts and automated charges, like credit card and student loan payments. This may take a while depending on how much you rely on services like online bill pay. But in the end, it’ll be worth it since you’ll have to open new accounts and set up automatic payments.

Once you’ve taken account of all of the bills paid with money coming straight out of your account, cancel any existing scheduled payments to prevent them from overdrawing your old checking account. Make sure to speak with someone from human resources at your job so you’re prepared to switch your direct deposit to the new account.

5. Close your old account

Don’t be too anxious to cut all ties to your old bank.

“Plan to leave the old account open for an additional statement cycle or two once your new account is up and running,” McBride says. “Too often, it is that one-off bill payment that is automatically drafted from your checking account that gets forgotten, so this gives you a bit more time to make sure nothing was overlooked.”

Once you’re sure that all direct deposits are coming in and all automatic payments are going out of your new account, transfer any remaining funds from the old account into the new one. You can expedite matters by doing this electronically, or you can use a personal check.

Once that last transfer clears, you’re free to close the old account for good. Be sure to get written confirmation from the bank that the account was closed to protect yourself from being victimized by a “zombie account” – one that has been reopened by the bank when funds were unwittingly directed to the account that you thought was closed.

Finally, be sure to shred the checks and cut up the debit cards from your old account to protect yourself from identity theft.

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